Everything You Want to Know About LLC Tax
LLC Tax Q&A
Filing LLC taxes and making timely payments is critical to your business’ good standing. In this article, we’ll answer the top questions about LLC tax liability, deadlines, and other important tax information. The IRS website is an excellent source for answers to more complex questions and they can guide you through unique scenarios. We’ll also share recommended vendors who can provide sound tax advice and file your tax returns for you.
Are LLCs Tax-Exempt?
Yes and No. The LLC itself doesn’t pay income taxes and instead passes them on to its members (owners) who report them on individual tax returns. As of 2022, single LLC owners (also called Disregarded Entities) pay a 15.3% self-employment tax for social security and Medicare taxes combined. Social security tax is 12.4% on all earnings up to $137,700. Medicare tax is 2.9% on all earnings, with an additional 0.9% surtax on earnings over $200,000. Only members who work for the business are required to pay self-employment tax. Self-employment tax is recorded on Schedule SE and filed with members’ personal tax returns.
Can You Tax an LLC as an S-Corp?
Yes. LLCs are popular because of ownership and management flexibility. But as the name tells us, an LLC business entity only provides limited liability protection. If your business meets the requirements, you can file form 2553 with the IRS to apply for S-Corp status. By electing S Corp status, you can also lower your tax burden by paying yourself more in distributions and less in salary. Distributions are subject to standard income tax and self-employment tax isn’t owed on them. You can lower your salary to make up for taking distributions, but the IRS does require you to pay yourself a salary that makes sense for the work you perform.
S-Corp election forms must be submitted within 75 days of the start of the LLC’s first taxable year. Failure to submit your 2553 form on time will the IRS to treat your business as a regular LLC for tax purposes. Late filings can be submitted with a late-filed 1120S form, as long as they are submitted within three years and 75 days of the LLC’s formation. You’ll also have to prove reasonable cause for filing late.
When are LLC Tax Returns Due?
LLC tax returns are due at different times, depending on your LLC type. Federal tax returns for Single Member LLCs are usually due the 15th day of the third month after the end of a company’s tax year. Most companies use a calendar tax year, so in that case, your tax return would be due by March 15th each year. Note that the due date does change according to weekends and holidays. The same due date applies to S-Corps. The only difference is the S-Corp is usually required to operate on a calendar tax year.
You may also be required to pay state taxes, so be sure to get the details from your state’s business taxation division. They’ll have due dates, instructions, and forms. Many states have online filing systems, or you can contact one of our tax partners to file for you.
LLC Tax Penalties
If LLC tax due dates are missed, you can rack up 5% of the unpaid tax for each month the tax isn’t paid. This penalty can cost you up to 25% of your unpaid taxes. If you miss LLC tax deadlines by more than 60 days, you’ll also have to pay an additional failure to file penalty. Both federal and state penalties are pretty steep, averaging $200 to $2,000, depending on your state’s tax laws.
What Tax Forms Do LLCs File?
The most common types of tax forms that LLCs file are:
Form 1065, Partnership Income Return: This form is used for partnerships and LLCs that do not have the S Corp tax designation. Each member of the LLC must file this form with their personal tax return. You’ll need your Schedule K-1 to file along with form 1065.
Form 1120S U.S. Income Return for an S-Corporation: This form is used for S corporations and LLCs that elect to be treated as S corporations. International transactions may have to be reported on Schedule K-3. We recommend businesses with international transactions contact a US CPA to file their LLC taxes.
Where to File LLC Tax Returns
If you’re comfortable doing your own taxes, you can file online with the IRS. They also accept paper returns by mail, and where you send your tax forms depends on where you’re doing business. It can take several weeks to process mailed tax returns. If you would rather have a professional file for you, our tax partners are well-versed in LLC tax filings and will make sure your returns are filed in a timely manner.
How Much Does it Cost to File Your LLC Taxes?
The cost of filing your LLC taxes can vary depending on the complexity of your business. If you are a sole proprietor, you can file your own taxes for free. If you have employees, you may want to pay someone to handle the tax return. Whatever you decide, there are a few ways to save money when you file on your own. Online services like TurboTax or H&R Block offer low-cost options.
MyCompanyWorks tax partners can save you money on tax filing mistakes and missed deadlines.
Quick Recap on LLC Taxes
We’ve answered the top questions about LLC taxes. By now you know that LLC tax returns are filed as a schedule attached to each member’s personal tax return. Electing the S corporation tax structure means you can avoid paying at least a portion of the 15.3% self-employment tax by paying yourself in distributions, which are only subject to regular income tax. Tax returns are due based on whether an LLC has elected the S corp status with the IRS. Since LLCs don’t file their own tax returns, members are responsible for reporting expenses, profits, and dividends on their personal tax returns. Depending on your business structure, you’ll report expenses, profits, and losses with a copy of a Schedule K, attached to your 1040 return, or forms 1065 and 1120S for LLCs that carry the S Corp tax election.
If you’re willing and comfortable filing your own taxes, you can file online with the IRS, or use online applications like TurboTax. The IRS accepts mail-in tax returns, but they take much longer to process than online filings. Managing business taxes is important, but not everyone wants to file on their own. Our Tax and Accounting partners are available to answer complex tax questions and even file your tax returns for you. They’ll make sure your returns are accurate and filed on time.
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